Email this article to a friend

Barclays' investment bank, set to be revamped and resized under group chief executive Antony Jenkins, has signed off with a strong set of figures for the fourth quarter and 2012.

The UK bank published its fourth-quarter and full-year results for 2012 this morning in what was effectively an apéritif to a Jenkins presentation, slated for 10.30 GMT, on plans to overhaul the business and culture at Barclays following a wide-ranging strategic review.

Jenkins is expected to outline in further detail Barclays' new strategy, which the bank said this morning would entail 3,700 job cuts across the group, of which 1,800 will be borne by the corporate and investment banking arm.

Another key tenet of the reorganisation will involve "repositioning" Barclays' equities and investment banking division businesses in Asia and Europe to better suit opportunities in those areas, while the bank also confirmed today it will close its structured capital markets operations.

The investment bank – which includes both Barclays’ trading and advisory businesses – posted a strong performance through the final three months of 2012, with fourth-quarter revenues, at £2.6bn, up 43% year-on-year, though down 2% quarter-on-quarter.

In the fourth quarter, both Barclays’ fixed-income, currencies and commodities and equities and prime services divisions recorded year-on-year revenue gains of more than 50%, up to £1.5bn and £484m respectively. Barclays’ advisory unit – which includes its equity and debt capital markets and M&A teams – delivered its best quarter for two years with a 24% year-on-year rise in fourth-quarter revenues to £626m.

Chirantan Barua, an analyst at Sanford C. Bernstein, wrote in a note this morning: "Investment banking income came in 7% ahead of consensus expectations and the rebound in FICC over Q4 2011 was in line with peers, coming in at £1.5bn – a 50% growth year-on-year."

Related

The investment bank ended 2012 with revenues of £11.7bn, excluding credit impairments and other provisions, up 13% on 2011. These fuelled pre-tax profits of £4.1bn, up 37% on the previous year.

The bulk of these revenues were generated by the FICC unit, which posted a 17% increase in annual revenues to £7.4bn. Equities and prime services revenues, at £2bn, were up 14%, while the advisory business posted a 5% increase in revenues to £2.1bn.

Barclays also took steps to "reposition” itself in the marketplace with regards to compensation in 2012, with Jenkins flagging a "significant” reduction in the year's total incentive awards.

The cost-to-net operating income ratio, which measures costs against operating revenues, fell from 71% to 64%, with the ratio of compensation to revenues falling from 47% to 39%. At group level, the compensation ratio was 38%. This came despite average income per employee in the investment bank rising from £429,000 to £494,000 over the year.

Jenkins said: "While this is progress, not the destination, we believe a ratio in the mid-30s is a sustainable position in the medium-term which will ensure that we can continue to pay our people competitively for performance while also enabling us to deliver a greater share of the income we generate to shareholders."

Investec analyst Ian Gordon said this morning he welcomed "the continuing attack on excessive investment bank pay" and applauded Jenkins for taking out costs.

"The cost:net operating income ratio fell from 71% to 64% in 2012 and we forecast 58.8% by 2015. Antony could take this lower."

• Barclays’ wealth and investment management division, singled out as a favoured area for expansion, saw a 52% jump in pre-tax profits to £315m over the year, plus a three percentage point increase in its return-on-equity to 13.9%.

The leap followed a 4% rise in interest income and fees to £1.78bn, plus a 2% fall in operating expenses to £1.46bn. The bank said costs would have been even lower without its expansion initiative: “Cost control initiatives were partially offset by the continued cost of the strategic investment programme.” Client assets grew by 13% to £186bn over the year.

In the fourth quarter, client assets rose 5% to £186m. Pre-tax profits during the last three months of the year rose 46% to £115m compared to the third quarter. Costs remained stable at £354m.